Form 1099-R - Death Benefit - Box 2a Unknown (filing in Virginia)

[AReefe_2021]

Doing Mom's taxes this year, specifically for state of Virginia, and confused by the Death Benefit. It states that it must be a lump sum; however, mom receives monthly payments and has a 1099-R (Statement of Survivor Annuity Paid) from OPM that shows the gross distribution in box 1, but 2a says "Unknown." This is classified as a death benefit (box 7 shows code 4). Federal taxes were withheld but not state taxes. Can I put the gross distribution amount from box 1 down as a death benefit or do I keep it at zero? It's the difference between her owing $0 or having to pay over $700 in taxes. Thanks for any help you can lend.  

[MarilynG1 · Accepted solution]

First, make sure you have entered this correctly in your Federal Return.

Be sure to select  CSA-1099-R Civil Service survivor annuity.  Select Continue and you will see automatically filled in information on OPM. Select Continue again and you will see Enter Annuity Information screen. You will be prompted to data entry and additional questions about your annuity. 

If box 2a is blank or UNKNOWN on your mom's 1099-R,  then there should be amount in box 9b to use with the Simplified Method.

Virginia requires that a 'Death Benefit' be paid out as a Lump Sum, so an annuity paid monthly is not considered a Death Benefit.  The amount would be $0. 

Click this link for more info on Virginia Death Benefits. 

Normally, the taxable portion of the annuity on your Federal return would also be taxable on your state return. 

Click this link for help from OPM Services.  You may want to have Virginia Tax withheld going forward if this is Taxable Income for her in Virginia.

[AReefe_2021]

Thank you so much for all the helpful information and links! Looks like I'll need to contact OPM to get some answers to help with the simplified method as I don't know the date the annuity payments started. Appreciate the help!

[thartnett3]

I get my wife's pension as a death benefit. I thought it was not taxable

[AmyC]

Any income that was taxable to the decedent is taxable to you. See About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans.

I am very sorry for your loss.

[punkin19]

My uncle passed away in 2021, and my mother was the beneficiary of his pension death benefit.  The death benefit was a flat lump sum payment.  Because it came from the pension office, she received a 1099-R for that one time payment with a code 4 (death benefit).  When I put the 1099-R into turbo tax, it disqualified her Retirement Savings Contribution Credit saying that the distribution eliminates her credit.  But she never took a distribution.  Is the death benefit considered a retirement distribution?? Or is this an error in turbo tax?

[RaifH]

You are correct that according to the instructions for the Retirement Savings Contribution Credit, "distributions from an inherited IRA by a nonspousal beneficiary" are excluded from the distributions that count against you.

However, the income from the distribution does still count towards her gross income. Does her income exceed the limit for her filing status?

• $66,000 if Married Filing Jointly
• $49,500 if Head of Household (with qualifying person)
• $33,000 if single, Married Filing Separately, or Qualifying Widow(er) with dependent child

@punkin19

[punkin19]

No, her income does not exceed the limit. How do I get help to get this corrected before filing? 

[RaifH]

This can be overridden in the system:

1. Go to Federal > Deductions & Credits > Retirement and Investments > Retirement Savings Contribution Credit and click Start/Revisit.
2. The amount your mother contributed through an employer should already be in there. Any additional contributions will have to be entered.
3. When you get to Tell us about her distributions from retirement plans, it should have the amount from the 1099-R for your uncle's death distribution in there automatically in 2021. However, you can simply delete it. Per the instructions on the form and TurboTax's "Learn More" section which is only on the TurboTax Desktop for this section, this list of items do not reduce your eligible retirement contributions:

1) Any amounts you "roll over" via a trustee to trustee transfer or a rollover distribution.

2) Distributions that are taxable as a result of an in-plan rollover to your designated Roth account.

3) Any distribution that is a return of a contributions to an IRA made during the year for which you claim the credit if the distribution is made before the due date of your return, you do not take a deduction for the returned contributon, and the distribution includes any income attributable to the contribution.

4) Loans from a qualified employer plan treated as a distribution.

5) Distributions of excess contributions or deferrals.

6) Distributions of dividends paid on stock held by an employee stock ownership plan under section 404(k).

7) Distributions from an eligible retirement plan that are converted or rolled over to a Roth IRA.

😎 Distributions from a military retirement plan.

9) Distributions from an inherited IRA by a nonspousal beneficiary.